But what if home prices fall in the next couple of years, even slightly. Would it actually be better to rent for a couple years and then buy at a marginally lower price?

Rent Now, Buy Later?

It’s okay to rent, honestly

You’re not necessarily “throwing money away”

Despite what people always say

You could actually be saving yourself money and headache

Say you decide to rent for $1,000 a month for two years (around the same cost of the mortgage sans taxes/insurance), spending $24,000 during that time and earning nothing in the way of home equity, not to mention any tax breaks.

After two years, you find a house for $237,500 and decide to put 20% down. That leaves you with a $190,000 loan amount and a mortgage payment around $963.

Let’s assume you go with the same loan program as our prior example and get the same interest rate.

After three years of holding the mortgage, you would only pay $9,624 toward your principal balance, but in doing so it would drop to $180,376, which is about $2,000 lower than the balance of the aforementioned mortgage.

So after five years, two years renting plus three years owning, you’d be ahead of the person who decided to purchase a home right away at a higher price.

After 10 years, the early buyer would have a principal balance of $160,179, compared to $161,153 for the renter-turned-buyer.

If we consider the down payment, $50,000 on the $250,000 home purchase and $47,500 on the $237,500 purchase, the renter is still ahead.

After 15 years, the early buyer would have a principal balance of $132,468, compared to $137,089 for the renter.

However, the late buyer would enjoy a monthly mortgage payment around $50 lower thanks to that five percent home price drop initially.

If they were to make the same monthly payment as the early buyer by putting that extra $50 toward principal each month, they’d actually come out ahead and pay off their mortgage in about 27 years, or 29 years counting the two years when they rented.

They’d also only pay around $401,000, compared to $415,000 for the early buyer, factoring in rent, down payment, and total mortgage payments.

Of course, my little scenario banks on mortgage rates staying in place and home prices dropping about five percent. If both go up, the equation changes quite a bit.

Still, it’s okay to rent if you can’t find a suitable home to purchase. You won’t necessarily miss out on anything. And you can always make slightly higher mortgage payments to play catch up if need be.

There might also be a better selection of homes in a year or two, once this recent housing bonanza settles down again.